Saturday, May 09, 2009

Stress Tests

The stress tests showed that despite a deepening recession, the government will require only two of the nation's 19 major banks to raise new capital totaling $9.5 billion, far less than what many analysts had projected. The government also is requiring 10 of the largest banks to increase their capital reserves by raising $74.6 billion in common equity, which can be generated by the sale of common stock.

Not that this comes as that much of a surprise. It seems a little creative accounting was done but in general things are better than they were in the fall.

There are still many questions about how well the banks are doing. If the economy continues to get worse especially in the area of employment, the banks might be sound and ready and able to loan money but there might not be any takers. Then what happens to the banks. Has any thought been given to that scenario?

It is important that the banks are in good shape or at least seem to be in good shape. If there really are they can start repaying the money they owe the tax payers. The sooner the better.